Mortgage swindler gets prison

SENTENCED: Kenneth Ketner, right, leaves U.S. District Court in Santa Ana after being sentenced Monday to 57 months in prison for mortgage fraud Monday. He is accompanied by the Rev. Richard A. Menees. H. LORREN AU JR., THE ORANGE COUNTY REGISTER

Kenneth C. Ketner of Newport Beach was sentenced to 57 months in federal prison Monday and ordered to repay banks $9.27 million he swindled in a mortgage fraud scheme.

The money helped Ketner buy a Lido Island waterfront home, a $250,000 Ferrari and a yacht he christened the "Aquaholic," according to civil, criminal and bankruptcy court filings.

Ketner, 58, was supposed to have been drummed out of the mortgage business in 2001, when his company lost its state real estate license. But Ketner, who was indicted for criminal fraud in 2005, continued to make a living from the mortgage business, according to defense and prosecution court documents.

"I have no one to blame for these tragedies except myself," Ketner said Monday, choking back tears as he read a statement to U.S. District Court Judge James V. Selna. "I know from the deepest part of my heart I will never be involved again in anything illegal in any way."

Ketner said he has turned his life around - sobered up, joined Alcoholics Anonymous, become the benefactor of a New Orleans church devastated by Hurricane Katrina, and taken responsibility for his wrongdoing.

But prosecutors argued that Ketner's turnaround came only in response to the threat of prison.

"He has continued to engage in fraud, not just past conduct that led to this indictment, not just past the indictment, but to this very day," Assistant U.S. Attorney Andrew Stolper told the court Monday.

Ketner has not been charged with any offenses subsequent to the fraud scam that ended in 2001. But federal law enforcement officials said his case illustrates the lack of consumer protection in California's mortgage industry - even from someone who pleaded guilty to mortgage fraud.

"Ken Ketner has admitted to taking advantage of all of the weaknesses available in the mortgage industry to defraud related parties, from lenders to borrowers, all for his own personal benefit," said Peter Norell, head of the FBI's white collar crimes unit in Santa Ana. "These types of frauds are serious and worthy of allocating resources to investigate because it hurts everyone involved and takes advantage of those seeking the American 'dream' of homeownership."

Ketner currently works as a partner in Danbury Consultants, "a company that markets mortgages by direct mail," according to an April 9 filing by Sheila Balkan, a criminologist hired by the defense to argue for a mild sentence.

Selna did not address Ketner's right to earn money from mortgage-related businesses during or after his prison term, which is scheduled to begin Aug. 27.

Ketner's former business partner, Michael Cardwell of Phoenix, said Ketner has been doing "consulting work," but has not been directly involved in writing mortgages.

"He's not - he can't be - in the business," Cardwell said. "As liberal from a licensing standpoint as California is, there are still background checks."

The California Department of Real Estate, which regulates most licensed mortgage brokers, employs 175 auditors and other enforcement staff to police more than 500,000 licensed real estate agents and brokers - fewer than one per 2,800 licensees.

"Clearly, given the numbers, we're more reactive and we need people to let us know what's going on," said Tom Pool, a spokesman for the Department of Real Estate.

A Ponzi scheme

Ketner's former company, Mortgage Capital Resource, specialized in issuing second mortgages used by borrowers to consolidate debt, giving them access to lower interest rates and tax benefits - all perfectly common and legal.

In 2001, Ketner was sued in federal court in Santa Ana by Household Commercial Finance, an Illinois bank that extended a $20 million line of credit to Mortgage Capital for home loans. Instead of using borrowers' money to fund the loans, Household Commercial alleged, Ketner personally pocketed more than $9 million to buy investment property, cars and boats, to support his family as well as a person described by federal prosecution documents as his "asexual mistress."

Ketner settled the suit, but never made a $5 million payment that was part of the settlement agreement, said Household Commercial's attorney, Carlos Solis. The Department of Real Estate revoked Mortgage Capital Resource's license in 2001 after Ketner refused to allow an examination of the company's account books.

Federal prosecutors began investigating Ketner in 2000, but the case got put aside for nearly two years after 9/11, Stolper said. He was indicted in 2005 on 16 counts of fraud and pleaded guilty last August to two counts of mail and wire fraud.

In his sentencing brief, Stolper wrote that Ketner "created a Ponzi scheme, except that instead of using new investors' money to pay back old investors, defendant was using new loan money to make good on old loans. Like all Ponzi schemes, defendant's collapsed under its own weight."

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